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Integration or Segmentation of the Malaysian Equity Market: An Analysis of Pre- and Post-Capital Controls

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  • Mansor Ibrahim

Abstract

This paper utilizes cointegration and vector autoregression (VAR) to assess integration or segmentation of the Malaysian equity market both prior to the Asian crisis and after the imposition of capital controls. We consider both regional and international financial forces represented respectively by the ASEAN markets and the advanced markets of US and Japan. We form three systems of share prices: (i) ASEAN markets; (ii) US, Japan and Malaysia; and (iii) US, Japan and ASEAN. Our findings suggest no long run relation among share prices in all systems either before the Asian crisis or after the imposition of capital controls. However, there are substantial short run dynamic interactions among regional markets of ASEAN. We note significant responses of the Malaysian market to ASEAN shocks regardless of the sample periods. By contrast, its responses to innovations in US and Japan, while significant before the Asian crisis, turn insignificant after the imposition of capital controls. The US market is comparatively more influential in accounting for fluctuations in the ASEAN markets. From these results, we contend that capital controls played some role in insulating the Malaysian market from international disturbances.

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  • Mansor Ibrahim, 2006. "Integration or Segmentation of the Malaysian Equity Market: An Analysis of Pre- and Post-Capital Controls," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 11(4), pages 424-443.
    • Handle: RePEc:taf:rjapxx:v:11:y:2006:i:4:p:424-443
    DOI: 10.1080/13547860600923718
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    2. Ugur Ergun & Abu Hassan Shaari Mohd Nor, 2010. "The Stock Market Relationship between Turkey and the United States under Unionisation," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 6(2), pages 19-33.

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    More about this item

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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